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A five-year bond with a yield of 7% (continuously compounded) pays a 5.5% coupon at the...

A five-year bond with a yield of 7% (continuously compounded) pays a 5.5% coupon at the end of each year.

  1. What is the bond’s price?
  2. What is the bond’s duration?
  3. Use the duration to calculate the effect on the bond’s price of a 0.3% decrease in its yield.
  4. Recalculate the bond’s price on the basis of a 6.7% per annum yield and verify that the result is in agreement with your answer to (c).

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

Cell reference -

jeff jeffy answered 3 months ago
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